Covid-19 briefing: epi-macro 101

The Covid-19 crisis has led to a swift shift in the emphasis of macroeconomic research. At the centre of this is a new field of inquiry called ‘epi-macro’ that combines epidemiological models with macroeconomic models. In this post, we give a brief introduction to some of the earliest papers in this fast-growing literature.

 
SIR Model

The starting point for epi-macro is the compartmental SIR model. This workhorse epidemiological model has three different compartments (Susceptible, Infected and Recovered) and models how individuals transition between them. Epi-macro models extend these models in two ways. First, the spread of the virus is no longer assumed to be exogenous but is instead affected by individuals’ behaviour, for instance consumers might not visit restaurants as much if they fear becoming infected while dining. Second, the linking of a simple model of production and consumption model to the progression of the disease facilitates predictions of economic variables. Though simple, these epi-macro models generate qualitative results with clear policy relevance.

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Πηγή: bankunderground.co.uk